Being away from home as a student you might imagine that you’ll be halls of residence in first year, followed by a shared rental in a flat for however long it takes you to finally graduate. It doesn’t have to be this way – in fact, it’s perfectly possible to get a first-time buyer mortgage while you’re still a student and not in full-time employment. We’ll explore your options below.
The Topics Covered in this Article Are Listed Below:
What Is a Student Mortgage?
You may have come across the term “student mortgage” and been wondering what it is. In fact, there isn’t a specific type of mortgage product aimed only at first-time buyer students. Rather, it’s possible for students to apply and get approved for a first-time buyer mortgage deal through the standard process. This will involve the lender assessing the affordability of the loan and typically requiring a minimum loan-to-value ratio of around 85%. It might also involve having a family member to support your application.
How Can I Get a Student Mortgage?
If you’re a student, it’s unlikely that you’ll also have a full-time job. This means that mortgage lenders are likely to see you as high risk in their affordability assessment, as you may not be able to prove that you can meet the monthly mortgage payments with your existing sources of funds. How then can you get a mortgage as a student and buy your first home?
There are two options you can pursue which are likely to help you with a successful mortgage application. Firstly, if you have a large deposit, it will effectively lessen the risk of the situation from the lender’s perspective. The deposit could be fully or partially gifted from your parents, or it could come from your savings alone. Even if you’re not in this situation, you may still be able to find a specialist lender that does not require a large deposit via a thorough search across the market. Read more about mortgage deposits in our guide.
Secondly, you can also consider a guarantor mortgage. In this case, either your parents, your grandparents, or your legal guardian can be your guarantor. This means that they'll be responsible to step in and pay for your monthly mortgage payments if you're unable to do so.
The guarantor will be required to sign a contract as part of the mortgage application, this is to confirm that they’ve had independent legal advice so they’re aware of the consequences, and this’ll provide security against the loan. This may be the guarantor’s own property. In this case, if both the borrower and the guarantor cannot cover the monthly repayments, the guarantor’s property is at risk of repossession. Otherwise, the guarantor may put forward their savings as collateral. In this case, a set cash amount will be placed in an interest-bearing savings account held by the lender. This will be held for a pre-defined period, or only released once a certain amount of your mortgage has been paid.
Are Guarantors Credit Checked?
Guarantors are usually credit checked along with the main applicant during the mortgage application process. Lenders usually look for a high credit score and a consistent credit history. A solid credit rating will generally ensure there’s a greater likelihood of the application being approved.
The credit check that’ll be carried out on the guarantor is usually only a soft credit check. This generally won’t have an effect on their credit score. Companies that check the guarantor’s credit history will be able to see that this search query took place.
What Is a Joint Borrower Sole Proprietor Mortgage?
Guarantor products are less readily available these days. They’ve mainly been replaced by a similar mortgage arrangement called a joint borrower sole proprietor. Joint borrower sole proprietor mortgages allow relatives to help you as a student to apply for a larger loan by including their income as part of the mortgage application, without their names being included on the title deeds.
The main difference between the guarantor mortgage and the joint borrower sole proprietor mortgage is that joint borrowers are seen as full borrowers. This means all parties are equally responsible for the mortgage and receive the same updates from the lender. In contrast, with a guarantor mortgage, the guarantor simply takes over the monthly mortgage repayments if the borrower can no longer make them.
Rather than being a new type of mortgage product, the joint borrower sole proprietor is more of a mortgage arrangement. It usually involves 2 or more people taking out a mortgage together and being considered equal borrowers. However, not all parties will be listed with the Land Registry as owning the property.
The main benefit of joint borrower sole proprietor mortgages is the same as with guarantor products – they increase the overall affordability of the application. This means it's likely you can borrow more money and spend more on the property you want.
An additional benefit of this type of mortgage is that if you’re helping by supporting a first-time buyer’s mortgage application and you already own a property, neither party will be required to pay the Stamp Duty surcharge that’s applied on second homes.
Finally, joint borrower sole proprietor arrangements are helpful if you’re interested in purchasing a buy-to-let property. If your joint borrower doesn’t pay tax or doesn’t own a property, the lender can assess the application using both incomes, but only the other party will be recorded in the title deeds.
Student Buy-to-Let
An alternative approach if you’re a student is to opt for a Student Buy-to-Let. These can also be known as house of multiple occupancy (HMO) mortgage, although they’re not completely the same thing
A Student Buy-to-Let will allow a student to purchase their own home whilst at university, with the support of their family. They’d typically rent out their spare rooms to friends or fellow students, to help them cover the costs of the mortgage payments.
The mortgage will typically be on a Joint Borrow Sole Proprietor basis, meaning both incomes will be considered. This also means the student can add their parent of guardian to the application, without their names actually being on the property deeds.
Will My Student Loan Affect My Mortgage?
One factor that may concern you is whether your student debt will mean that there’s less of a chance that the lender will approve your mortgage application. Student loans can have a negative impact on your chances. But more importantly, your overall finances need to be in good shape. You’ll need to prove that you have sufficient income to cover the monthly payments and if you have a guarantor, then they need to have a good credit record.
Before you start the mortgage application process, you should consider what you can do to improve your credit rating. The higher your credit score, the better your chances of being approved for a mortgage. If you’re not in a rush to buy, a better idea might be to wait for a few months to work on improving your credit score, before you take the plunge to apply for a mortgage as a student. This should mean you have wider access to traditional high street lenders who can offer you a better deal.
You can do the following to increase your score:
- Show lenders you’re a responsible borrower and pay your utility bills and credit card debts on time and in full.
- Pay off any other debts that you have – such as loans or car payments. If you can’t clear all these debts, pay off as much as you can.
- Register on the electoral roll.
- Think about reducing the number of accounts and credit cards you have, even if you're not in overdraft.
- If you must use a credit card, make sure you pay off the balance each month. This will slowly increase your credit rating as it shows you meet your repayment deadlines each month.
- If you have a good explanation for previous financial difficulties, such as being made redundant or falling behind because of ill health, consider adding a note of correction to your credit report so that lenders will be aware of this.
- Use your available credit in a sensible way. For example, make small purchases on your credit card and pay off the balance in full each month. That can help build your score because it shows that you’re making repayments on time.
With student debt, the ideal situation is to plan for a deposit of around 15% to 20% of the value of the property. You'll also need to show that you can afford to pay back your student debt in the long term and still meet your monthly mortgage obligations.
Can I Get a Mortgage as a Mature Student?
It’s perfectly possible to take out a mortgage as a mature student. From a lender’s perspective, it makes no difference. They will assess you based on the same criteria as younger students. That said, the terms and conditions may vary from lender to lender, with some more sympathetic to your situation than others.
Even when you don't meet the well-known high street lenders’ affordability criteria, you may still be able to find specialist mortgage providers who will take you on.
Can I Get a Mortgage as an International Student?
You can take out a mortgage in the UK as an international student if you have a good credit history, and you can satisfy the lender’s affordability requirements. It doesn’t matter where you were born.
The complication may be that if you are going the guarantor mortgage route, your guarantor will need to be a property owner based in the UK who also has permanent right of residency in the UK. Even without a family member willing to be your guarantor, you may still find a lender who will offer you a mortgage as a student.
To learn more about getting a student mortgage or to get an expert opinion on your specific circumstances, get in touch with John Charcol. Give us a call on 0330 433 2927 or enquire online today.
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